The Internet market in Sweden
T E C H N O L O G I E S
INTERNET
T E L E C O M M U N I C A T I O N S
MEDIA
September 1998
© Öhrlings Coopers & Lybrand AB
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The Internet market in Sweden, September 1998
Summary
1
Introduction
Öhrlings Coopers & Lybrand in Sweden (ÖC&L) has produced this study of the
Internet market on behalf of the Swedish National Post and Telecom Agency (PTS).
The purpose of the assignment has been to describe and analyse the Internet market
and the development of the Internet in Sweden. The study is based on interviews with
25 companies. Apart from these interviews, extensive background material has been
collected, mainly of material on the Web. In addition, ÖC&L has carried out a
consumer survey of Internet use in Sweden.
The Internet has been available in Sweden for more than a decade, but only in the past
2-3 years has its use really taken off. In the space of ten years or so, the Internet has
made an impact among users that it took other media, such as radio and television,
several decades to achieve. Internet development is still in an expansive phase and all
assessments made indicate that development will continue to be strong. The potential
of the Internet has so far only been used to a limited extent, and the main areas of use
have up to now been communication and information gathering.
2
The Swedish Internet market
The Internet’s value chain
Customer
equipment
Communication
equipment
Access
Internet
Web site
Services
Products
Source: Öhrlings Coopers & Lybrand
2.1
Customer equipment
A personal computer is the main tool for most users to get access to the Internet. In
1997 there were 35.3 computers per 100 people in Sweden, an increase of 6
percentage points compared to 1996. New tax rules, where companies have the
chance to provide their employees with home computers exempt from tax on benefit,
have meant that sales of personal computers have grown considerably and the effect
of this is expected to last for at least another year or so.
2.2
Communication equipment
Connecting a computer to the Internet requires both communication equipment and
access to an Internet Service Provider (ISP). For most users this product category
consists of various types of modems, and usually a connection via a fixed
telecommunications network. As regards private use, modems are very widespread
and without doubt the most common way of reaching the Internet from the home. The
main reason for the wide distribution is the low cost.
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2.3
The Internet market in Sweden, September 1998
Access
At present there are several different ways of accessing the Internet. Dial-up access
via modem is absolutely the most common way for private users and small
companies, while large companies often have a leased line. By means of a modem
with higher transfer capacity and more favourable terms for an ISDN connection,
private users now have Internet access with a capacity that is sufficient in most cases.
Both among users and industry experts, however, opinions vary widely as to the
significance of bandwidth for Internet development. Available bandwidth steers the
development of services, which in turn steers customers’ expectations of other
services. Digital television has great potential and the one who can be first to offer
good services will hold a favourable position. Cable modems may have some success,
but not as much as for example in the US and UK. ADSL/xDSL will probably be the
technology that will dominate in the long run as far as lines to households and small
and medium-sized companies are concerned, provided that the price becomes
attractive.
Market development
The subscriber growth in Sweden has been exponential in the past three years. The
total number of users of dial-up access has increased from 54,000 subscribers at yearend 1995 to almost 950,000 in mid 1998. Our assessment is that strong growth will
continue, though with a lower net growth rate than up to now. We estimate that the
number of subscribers with dial-up connections will be about 1,3 million at year-end
1998 and about 1,85 million subscribers at the turn of the millennium.
We estimate that the revenues from dial-up access to the Internet1 were SEK 350
million in 1996, but had increased to SEK 920 million in 1997. In 1998 and 1999 we
estimate that the total revenues for this market will be SEK 1,790 million and SEK
2,890 million respectively2. On the basis of this trend the revenues from dial-up
access to Internet will be over 10% of the total revenues from the market for fixed
telephony3.
Telia, Tele2, Telenordia/Algonet, Sonera (formerly Telecom Finland), WorldCom and
Global One are examples of major operators who provide Internet access. Of these,
however, only Telia, Tele2 and Telenordia at present offer dial-up Internet access to
the private segment. In addition there are at least a hundred retailers of Internet
connections in Sweden, including companies such as BIP (Bottnia Internet Provider),
Utfors/Spray and SBBS2, that all offer free access to the Internet.
ÖC&L’s assessment is that Telia and Tele2 are of equal size in terms of market share
for dial-up access. Both companies held a market share of 33% in mid-1998, while
Telenordia had an 18% share. We estimate that they will maintain their strong market
1
I.e. revenues from connection, subscription and traffic
2
Excluding any revenues from interconnection
3
This assumes that the revenues from the fixed telephony market increase to the corresponding extent as during
the years 1994-1997, see Stelacon’s report for PTS ”Marknaden för telekommunikation i Sverige,1997” (The
Telecommunications Market in Sweden, 1997)
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The Internet market in Sweden, September 1998
positions for dial-up Internet access for the next few years. In the longer term we
believe that the market concentration will increase, when smaller ISPs will find it
difficult to survive only offering Internet connection.
Price development
There has been a considerable fall in price for Internet subscriptions as the operators
compete to attract new subscribers. Our estimate is that the average monthly cost of a
subscription for dial-up access has been reduced by 50 % in the last two years. In the
USA a so-called flat rate is used, that is the cost to the customer is not affected by
how long he/she is connected to the Internet. The break-even point for when the
present price model in the USA is more advantageous for the private subscriber than
the Swedish time-related price model is 20 hours per month. For the corporate
subscriber the corresponding level is 10 hours. From this it can be concluded that the
structure and the charge level in Sweden is more advantageous for the private user,
who ÖC&L estimates is connected for 12 hours on average, while the opposite applies
to the corporate user, who ÖC&L estimates is connected for 20 hours per month (dialup access).
ÖC&L’s assessment is that the traditional minute rates for the Internet will be
replaced by payment for services used. One scenario for the future is that many
companies will pay for a certain service level and per megabyte, while a considerable
proportion of the private segment will be offered Internet access without charge in
exchange for using a certain start page on the World Wide Web.
2.4
The Internet
The Internet consists of the packet switched network that uses IP (Internet Protocol)
for traffic. In this category one finds the traditional telecom operators that offer
various types of access and Internet services to corporate and private users. Our
assessment is that future IP-based services, which e.g. integrate speech and data, will
have a great impact in the longer term in the entire telecoms industry. IP-based
networks have a different cost structure than the public circuit-switched network, and
offer major opportunities to develop applications for the future. For both traditional
telecom operators and equipment suppliers, considerable investments in development
of IP-based services will be necessary for long-term competitiveness. For Internet
telephony in its simplest form our assessment is that this service will only have a
market in the next 3-5 years. When the margin for arbitrage disappears as accounting
rates and retail prices in the public telecom network are drastically reduced, the cost
advantage of this service will disappear. In the future, packaged value-added services
over IP-based networks will play a significant role in the telecoms market.
2.5
Web sites, services and products
A company’s presence on the Internet consists of its Web site. This includes both the
infrastructure itself for enabling the Internet presence, i.e. servers, software (e.g. Web
server software) and networks etc, as well as graphic design and any interface with
other systems. The Web site is a prerequisite that enables the company to offer its
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The Internet market in Sweden, September 1998
services and products over the Internet. As the Internet has grown, the number of Web
sites has increased dramatically at the same time as the design of the sites tends to be
increasingly extensive and sophisticated.
The service/product category refers to all the services and products offered by Internet
as a common sales channel. This category includes companies from more or less all
industries. For companies in the short term the Internet means a possible competitive
advantage. In the long run the development provides opportunities for increased costefficiency through reduced transaction costs and increasing economies of scale.
The sale of products and services via the Internet is, however, still a relatively new
and immature concept. Many Web shops do not offer more than a catalogue on the
Internet, where the customer can fill out an order form and send it electronically to the
supplier. A great strength of the Internet is it’s quality of being an excellent medium
for presenting large amounts of information in a clear and interactive way. Even if the
sales of relatively simple products such as food will increase, in our opinion mainly
financial services and so-called information-rich products will be traded on the
Internet. Books, music, computers, travel and cars are examples of information-rich
products, i.e. products that require facts, news, knowledge, wisdom and advice.
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Use of the Internet
Use of the Internet has developed extremely rapidly in the past two years. Our
recently completed survey shows that 46% of the Swedish population between the
ages of 18-74 stated that they have access to the Internet. 40% stated that they use the
Internet, which means that over 2.4 million people between the ages of 18-74 use the
Internet for some purpose in the home and/or at work.
There is a certain geographical difference in the availability of the Internet. 65% of
the Internet users living in urban areas state that they have access to the Internet at
work and 63% at home. The corresponding percentage of those who use the Internet
and live in rural areas is 53% at work and 71% at home4. Consequently there is a
higher proportion of those who use the Internet in urban areas who have access to it at
work, while the percentage who have access to it at home is higher in rural areas.
26% of those who use the Internet at home state that they use it daily. Of those who
have access to and use the Internet at work 43% state that they use it daily.
In our study we have also investigated both private users’ present areas of use and the
services that the users believe that they want to use more in future. This comparison
gave the following results.
•
4
4% use the Internet for Internet telephony while as many as 58 % say they want to
use Internet telephony in the future.
By urban area is meant Stockholm, Gothenburg and Malmö. By rural area is meant sparsely populated areas and
communities with a population of less than 200.
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The Internet market in Sweden, September 1998
•
About 20 % state that at present they use banking services and pay bills over the
Internet, while about 70 % say they want to use these services on the Internet in
the future.
•
6% state that they trade in securities/shares at present, while almost half of the
users state that they are interested in doing this in the future.
•
18% state that they use the Internet for ordering goods, such as books and CDs,
but over 70% wish to do this in the future.
•
8% state that they order food over the Internet, but also in this case more than 70%
wish to do this in the future.
•
20% state that they order/book tickets via the Internet, but almost nine out of ten
say they want to use the Internet for this in the future.
These figures indicate the considerable market that is opening up and has opened up
for companies that can make attractive offers to customers over the Internet. There are
a lot of different types of goods and products that have a good chance of making a
major impact over the Internet.
3.1
The future significance of the Internet
As part of the survey we also put questions to users about the future significance of
the Internet, and what they feel are the greatest obstacles to development.
•
A majority of users (55%) did not think that present prices for subscriptions were
any obstacle at all to use. 7% regard this as a very great obstacle.
•
As regards security, 36% believe that this is not an obstacle to use. 10% regard
this as a very great obstacle.
Internet users do not seem to see any obvious obstacles to increased use. Nor were
there any dramatic differences in the attitude to obstacles as regards sex, geography,
demography or level of education. In our opinion it is, therefore, more important to
overcome the obstacles felt by non-users than to alleviate the obviously modest
obstacles felt by today’s users.
As regards the future significance of the Internet the following was noted:
•
96% of Internet users believe that the Internet will have a fairly great or very great
significance for economic and social development in the future. As many as 53 %
believed that the Internet will play a very great role.
•
Among the non-users of the Internet, 84% believed that the Internet will have
fairly or very great significance for economic and social development. 44%
believe that the significance will be very great.
Of Internet users, over 80% believe that the Internet will play a very great role for the
individual in the future. The survey on Internet use gives several interesting
indications. Among other things, it shows an expected increase in use of services over
the Internet, such as transaction services, trade and communication. It also shows the
considerable importance for future economic and social development that both nonusers and users attribute to the Internet. The obstacles that many industry experts are
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The Internet market in Sweden, September 1998
emphasising do not seem to be regarded by today’s users as a major impediment to
increased use.
Use of the Internet will continue to increase rapidly in the next few years. The
traditional areas of use, i.e. e-mail, information seeking and surfing as pure
entertainment will continue to be important, but we will see a significant increase in
the use of transaction services, such as banking and paying bills etc. We will probably
see a strong increase in commerce over the Internet. We do not believe, however, that
trade over the Internet will fully take off before the turn of the millennium. For
companies it is a matter of understanding the new business logic and of creating
services over the Internet that generate real added value and customer benefit for the
users.
Level of penetration and use of the Internet is already high in Sweden, and there is
little to contradict that expansion will continue to be strong. The Internet has the
potential of becoming available to everyone and as natural a part of life as the
telephone and television are today. However, it is essential that the right conditions
are created through increased education, both at school and in working life, so that
everyone will have a good chance of taking an active role on the Internet and in its
future influence on society.
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